Fed's Kashkari - no reason to 'tap brakes' on U.S. economy

Reuters Staff

2 Min Read

(Reuters) - Minneapolis Federal Reserve Bank President Neel Kashkari, who dissented both times the Fed raised interest rates so far this year, on Monday signalled he may do so again in December when the Fed is widely expected to deliver a third rate hike.

FILE PHOTO - Minneapolis Fed President Neel Kashkari speaks during an interview at Reuters in New York February 17, 2016. REUTERS/Brendan McDermid

“Because inflation is low, I am seeing no reason to tap the brakes on the economy,” Kashkari said in a Town Hall event at Winona State University in Minnesota and broadcast via the Minneapolis Fed’s website. A rate hike would be expected to slow the economy by reducing incentives for borrowing, investing and hiring.

Unemployment was 4.1 percent in October and is expected to fall further this year. But inflation has weakened this year despite the drop in the jobless rate, and slow growth in wages suggests there is still slack in the labour market, he said.

“My perspective is, let’s allow the job market to continue to strengthen, allow more Americans to go back to work, allow wages to strengthen, and then, if we start to see inflation creep back up to our 2-percent target, we can tap the brakes then,” he said. “I don’t see any reason why we have to tap the brakes, when inflation is continuing to run low.”

Kashkari’s view sets him apart from many at the Fed who are increasingly worried that without interest rate increases the labour market could overheat. Earlier Monday Dallas Fed President Robert Kaplan, also a voter on policy this year, said a rate hike would be appropriate in the near future.